Posted by kdownie @ 1:16pm GMT
With the departure of FCC chairman Michael Powell, it looks like telecom
regulation reform isn't going to happen this year. What a surprise – wink wink.
But regulation snafus are only one barrier in the minefield that Internet telephony
providers must cross in order to bring the technology to the masses. It's not
going to happen overnight, but VoIP is coming. So who will cash in? Will it be
cable companies, wireless providers or VoIP-focused specialty players like
Vonage? Will consumers save money in the end? And are local telephone
companies doomed as voice communications slowly but surely turn to the
Internet?
It's not Powell's fault, but the timing of his resignation couldn't have been worse
for the growing industry based on voice over Internet protocol (VoIP), also known
as IP telephony. An important ruling was expected this week from the Federal
Communications Commission (FCC) concerning Level 3 Communications, a
specialty VoIP provider and primary competitor of Vonage along with Lingo and
Skype. Level 3 had requested a ruling that would allow it (and other IP telephony
companies) to pay lower fees to local telephone companies to begin or end voice
calls on their networks. If Level 3 loses, that means bad news for specialty VoIP
providers, and higher rates for their customers. With Powell as FCC chairman,
Level 3 CEO James Crowe had every reason to expect a win. But with Powell's
departure, it's anybody's guess how the split commission would vote. Because of
the importance of this ruling to Level 3's business, Crowe withdrew the request,
saying that "the appointment of new leadership only three business days before
the statutory deadline for ruling on the petition" made it "inappropriate to ask the
agency to resolve this important issue in the timeframe required by law,"
according to CNET.
Internet phone service has been around for years, but large-scale consumer
offerings are relatively new, and still experiencing growing pains. While it's clear
that voice communications are inevitably headed to the Internet, how and when
that will happen remains a cloudy picture. Also unclear is whether consumers will
benefit from lower prices or better service in the end, or whether the shakeout –
when it comes – will be largely a behind-the-scenes technology change.
The big push toward VoIP started a year ago, when AT&T unveiled its
CallVantage offering at the Spring VON 2005 Internet phone conference in San
Jose. Shortly thereafter, two of the bells got into the game – Qwest with OneFlex
and Verizon with VoiceWing. Then Vonage launched a huge ad blitz. This year
the cable companies followed suit, with Comcast pushing its Digital Voice service
and Time Warner touting a business-oriented VoIP product. Analyst firm Instat
predicts a steady rise in worldwide subscribers over the next few years, claiming
there will be at least 22 million VoIP subscribers worldwide by 2008.
Despite all this hype, advertising and activity, however, consumers don't really
seem to care – yet. CallVantage has been a big disappointment for AT&T. Maybe
they were just a little early to market, but according to Forrester Research,
overall consumer interest in switching to VoIP remains weak. Interestingly
enough, Internet Business readers appear to be early adopters of IP telephony
services. In a recent Internet World poll, 25% of our readers indicate that they are
already using Internet telephony in place of traditional phone service, and
another 20% are considering switching.
Forrester's research also indicates that all may not be lost for local telephone
companies, even as the migration to VoIP ramps up in the coming years.
Although specialty providers such as Vonage are leading the way with early
(read: tech-savvy) adopters, "regular folks" are most willing to consider the local
phone company first. What's more, these same people are saying that, for now at
least, they are satisfied with the pricing and quality of their local telephone
service. The upshot: The majority of Americans are not going to switch to VoIP
just for the sake of it, even if the prices are marginally lower. They are going to
switch when the phone companies do.
And when will that happen? Delays in regulatory reform, security concerns,
gripes over regulatory fees, and questions about how (and if) taxes will be levied
on a service that no longer requires a local infrastructure to operate are
formidable obstacles that will need to be ironed out over the next few years. But
VoIP could actually present a golden opportunity for the Bells to broaden their
markets outside their traditional service territories, since VoIP services can
theoretically be offered to anyone with a broadband connection – as long as the
government doesn't get in the way. Will this result in more competition and
therefore lower prices? Who knows? As far as consumers are concerned, the
shift from traditional phone service to Internet calls may turn out to be transparent
– simply a case of "meet the new boss, same as the old boss."
